The Wall Street-Washington divide

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Goldman Sachs CEO Lloyd Blankfein wins sympathy from some senators during his testimony before Congress on April 27.
AP Photo

For example, if a big Wall Street bank were asked to offload a large block of stock for a retirement investment fund, it might decide to do so in increments, so as to guard against any sudden impact on the markets. Since those stock transactions could then take some time, Volcker would allow the bank to protect itself — and its depositors — by generating derivatives as a hedge on the stock price.

Lincoln said she’s not fazed by going beyond Volcker. But as she explained her language, she also seemed to be leaving some room for compromise. Bank holding companies could have swap operations — separate from the bank itself, for example. And she said she is not opposed to a bank’s buying a swap to protect itself but that it ought not to be the dealer.

“They can still use a derivative as a risk-balancing tool,” Lincoln told POLITICO. “They just can’t be a major swap dealer.”

Watching from across the Capitol, House Financial Services Committee Chairman Barney Frank (D-Mass.) said that Lincoln’s comments did leave room for compromise.

“The question is whether there is a legitimate need for commercial banks, including small ones, to be able to hedge their own risks,” Frank said in an interview. “If that’s made clear, then there is no problem.”

“There’s a bit of a push-pull in this. I believe the consensus will be, they can’t be dealers, they can’t be major players, but they should be allowed to hedge their own commercial risk.”

“Volume becomes very important for the regulators,” Frank said, imagining some conversation in the future when a regulator asks a bank: “‘You’re saying you’re hedging your own risk, and you’re way out there?’”

“I like the idea that banks don’t have other profit centers,” the chairman said, smiling. “They’ll have to lend more money.”

Gregg warned that separating the banks from swaps operations will create less credit, not more, since the new independent entity will drain away capital to meet its own needs.

“Where it comes from, quite honestly, is the creditworthiness of other activity. ... It will cause a contraction of about $700 billion of credit in this country.”

Within Democratic ranks, Lincoln’s activist stance is not without some irony. In the run-up to her committee markup last week, Treasury officials had portrayed her as being too weak on derivatives regulation and took credit for turning her around. But she’s now gone further than the administration expected — and left Treasury in a position where it now looks like it’s defending the Wall Street banks from a more populist Congress.

Treasury Secretary Timothy Geithner didn’t help himself in this regard by failing to even meet with the new chairwoman before her markup. And given his own history with the New York Federal Reserve and dealings with many of the same Wall Street interests, it’s the Lincoln camp that now suggests he ought to be on the defensive.

Readers' Comments (32)

Goldman's testimony, no doubt orchestrated by its brilliant counsel Greg Craig, was an upfront launch of their SEC defense-- hey, we're investment bankers making markets for [drecky] derivative instruments with little or no economic utility other than to facilitate highly risky gambles by smart-asses like us against dumb-asses like European banks and the American public. How dare you suggest that we owe a fidicuary duty to our clients or anyone else. We're bankers, not lawyers!

Sen. Judd Gregg (R-N.H.) was almost apoplectic this week in a floor speech condemning the provision as an ill-informed attempt to really rough up Wall Street — not reform it.

What a joke! These investment banks use derivatives to control prices. With unemployment rising, gas prices should be going down but they are going up instead and airlines caught this last year as well. These "fat cats"are out to make money for themselves and pass the cost on to the people. Oil companies aint' the only ones making the $$$.

Does anyone in this legislature even know how to speak the truth anymore?

If insanity is repeating the same thing and expecting a different result, what should WE call re-electing the politicians that caused all the problems in the first place with an expectation that they will fix them?

It's clear Democrats simply do not understand their politicians or the financial markets. The Democrat politicians and Wallstreet are like peas and carrots that go together, they just give the public impression since Obama has become a class warfare President, that they just want to do what they can under the dire cirmcumstances.

Look at it this way, Wallstreet gave the Dems 40 million for campaigns, the Dems only pick out Goldman Sachs to slap on the wrist with a wimpy lawsuit in civil court, the testimony in front of Congress (they also had the WH gate crashers do that), then a wimpy Financial Bill which doesn't get to the source of the problem. The Democrats are all about posturing but not about solving the problem. After all they have their own problems like Fannie and Freddie and 5 Trillion dollars of bad mortgages to deal with. (They just let Tim Geithner deal with it, so it's ignored)

House # of Members Average Contribution Total Contributions Democrats 103 $4,557 $469,450 Republicans 66 $3,800 $250,851 Independents 0 $0 $0 TOTAL 169 $4,262 $720,301 The US House of Representatives has 435 members

Republicans only allowed negotiations because the checks from Wall Street started to bounce. They didn't like the fact that the GOP could not tell the democrats what to do.

The 41 Senate Republicans who signed a letter of opposition to the Democratic financial regulatory reform bill have on average received 25 percent more money than Dems from Wall Street over the past six years.

BREAKING NEWS: Frank Luntz still providing the GOP with their Talking Points "Why the Dodd Financial Services Bill Is Bad... For Democrats" Oh my, now Wall Street reform is bad for Democrats when it was Bush and the Republicans who destroyed the economy by asking regulators not to regulate. This is the same thing McConnell has been saying that the Dodd bill is a bailout blah blah blah Republicans believe in LUNaTicZ

Goldman-Sachs's legal problems will be settled in court but its ethical problems are more important and damming. In my mind, ( whatever that is?) GS is the ultimate example of what is wrong with our form of capitalism. Capitalism at the time when we were a manufacturing exporting country was the driving force in what made our whole country prosper from the rich to the hard working lower class. (Look at the rust belt in the midwest.) What GS and the rest of the financial industry has done for example is create wealth without producing anything of value, for example Synthetic Derivatives. Yes the financial industry is the driving force behind any economical development in our country but it is not the development that puts meat and potatoes on the average working stiffs table, it is what has made the Chinese the 3rd richest country in the world. My question is can the American people turn this situation around or will this be the "Rise and fall of the American, (Roman) Empire."

Goldman-Sachs's legal problems will be settled in court but its ethical problems are more important and damming. In my mind, ( whatever that is?) GS is the ultimate example of what is wrong with our form of capitalism. Capitalism at the time when we were a manufacturing exporting country was the driving force in what made our whole country prosper from the rich to the hard working lower class. (Look at the rust belt in the midwest.) What GS and the rest of the financial industry has done for example is create wealth without producing anything of value, for example Synthetic Derivatives. Yes the financial industry is the driving force behind any economical development in our country but it is not the development that puts meat and potatoes on the average working stiffs table, it is what has made the Chinese the 3rd richest country in the world. My question is can the American people turn this situation around or will this be the "Rise and fall of the American, (Roman) Empire."

Few people were surprised by the arrogance, grandstanding, and ignorance of the interrogators, though. It would appear that the Congressional panel had no intention of getting the facts (maybe because they couldn't understand them--hmmm. I'm just a "normal" mother and understand the basics of the situation.) We must learn what actually happened, and we must know the differences between "unethical", "immoral", and "illegal". Did Goldman-Sachs do anything illegal? The televised hearings didn't show it. Unethical or immoral--those are subjective terms applied to certain arenas and circumstances (a defense attorney might know that his client is a child killer but must try his hardest to put him back on the streets, where he will do it again--immoral, yes, but it would be unethical to not try to prove his innocence.) and open to debate. However, no one should want someone prosecuted for being immoral or unethical, UNLESS it is illegal, too.

If Congress wants to make any points with me, it would put Fannie Mae and Freddie Mac up there and grill them. Congress also should have non-political expert advisors/educators at their disposal to explain to them, along with those being accused, what happened, and whether any laws were broken. Otherwise it is politics as usual, and, unfortunately, there are many who don't care about the facts. Some people just want to demonize others, but, when asked why, they sound foolish and don't even know it.

Reform Must allow Banks to Fail & must not go overboard w Regulation - like Sarbaines Oxley - that only Favor the Big Boys. Crony Capitalism will only Punish the Innovative & Hurt America's place in the World's Markets.

If Congress wants to make any points with me, it would put Fannie Mae and Freddie Mac up there and grill them. Congress also should have non-political expert advisors/educators at their disposal to explain to them, along with those being accused, what happened, and whether any laws were broken. Otherwise it is politics as usual, and, unfortunately, there are many who don't care about the facts.

The CEO of Fannie took 90 million in a bonus as the result of the "new" market of derivative sales approved by Congress ,by the way. Fannie and Freddie along with Congress invented the no proof of income puffy air loans for Mcmansions. It's evident that Congress is clueless or just acts clueless until it's time for Wallstreet to ante up campaign donations. Nobody heard 2 years ago, Obama protesting Goldman Sachs, he took their 1 million during the worst financial crisis and then slaps them on the hand only after he got elected.Did he put thru any legislation two years ago? NO.

Notice none of the Democrats want to address Fannie and Freddie they have left that to the Treasury and have their talking points like Frank does,, it was the Republicans who are responsible. Any educated and informed person knows Congress had as much if not more of a role in the economic meltdown as Wallstreet did. They are covering their behinds as Obama is for the next election. Americans will vote them out anyway. At least mcCain wanted the SEC guys fired, and an independent investigation on their doings. No one should believe any Democrat in Congress regarding their denial of a huge role in the financial meltdown.

There is a "limit" on what he thinks should be considered "fairly earned" That companies have a "responsibility to grow the economy"

Both of these ideas are foreign. They are not part of American tradition or a capitalist economy. If you follow the laws of society, and earn money by providing a desired product or a desireable service, then you have "fairly earned" as much as you can earn. There is NO point at which you have "earned enough". This concept is touted in many socialist nations who 'seize" the assets of the wealthy that they deem too excessive, or even "cap" income to a "fair" level. We see the results of this concept in action in places like Zimbabwe and China.

As for a "responsibility to grow the economy", when was that edict issues? Do companies have a "responsibility" to grow the economy? And if they fail to do so, or don't do it well enough, does that five government "rights" to take action because the companies were "irresponsible" and thus the economy did not grow quickly enough. Seizing companies is not a US tradition. It is not a capitalist concept. And we don't recognize any "responsibility" for a company except compliance with existing law. Obama is making the case for a new standard. One employed by Stalin and Lenin. If the cpompany was not "contributing to society" (i.e. growing the economy), then it could be seized and owned "by the workers". We saw a hint of that already with GM and Chrysler.

This should scare you. This should scare all Americans. In a carefully controlled media and political environment, we don't often get a peek into the true thinking of our leaders. They are too disciplined, coached, and talk from prepared notes so as to not make a "gaffe" (an unexpected revelation of truth). Obama has just done that. We now see how he thinks. And it confirms what we saw with his talk with "Joe the Plumber". And it is consistent with his policies on "spreading the wealth" that we see in taxes and in healthcare.

This is just his second year of "fundementally changing America and its foundations". Do we want the remainder of the agenda? I don't. How about you?

Why is Obama "on the offensive"? Why is he attacking virtually anyone who has a new or different idea? Even the press has taken to calling him "thin-skinned". What motivates our President to single people out ant attemtp to demean them with malicious smears?

Cause he extended his hand and the republicans spat on it, and now he is not taking NO for an answer. He was sent to Washington with an ovewhelming mandate to get things done not to STARE AT THE CEILING like republicans in both houses of Congress do everyday and STEAL their paycheck by only criticizing what the other side does while doing NOthing.

After burying republicans with Vote after Vote on debating financial reform, after 3 days republicans gave it up. They couldn't take the political pressure of having to explain why they were siding with Wall Street fat cats who made a killing from DESTROYING our economy instead of Main Street blue collar workers who lost their jobs and their houses.

Funny you attacked me but not the FACTS on the video, I call that PROGRESS.

As far as winning or loosing I just HOPE America succeeds and democracy prevails UNLIKE those Tea Party clowns who want America to FAIL and right wing instigated Anarchy to PREVAIL.

If the Tea Party really cares about Americans freedoms they should be marching in Arizona where the republican Governor Jan Brewers "Papers Please" law INFRINGES on the US CONSTITUTION and is one of the most overreaching laws in the history of the United States of America.

Blanche baby is correct that depositor money should be protected. However, there is one aspect of protecting depositor money that is overlooked: the taxation of deposit income as if it were true income. The portion of deposit income that is in excess of the CPI should be taxed at normal rates. However, that portion of income that merely covers inflation should never be taxed under any circumstances.

If you developed a spreadsheet whereby all income was derived from deposits, then after taxes and at the end of the progression, there would be no money left in the account!

135 members of Congress stole BAILOUT funds and stashed them in off-shore accounts.

"The naked corruption that is endemic in D.C. is more than most can comprehend; it is clear that these miscreants have no regard for the US Constitution, Federal Laws and Regulations, nor even any sense of simple morality. They are convinced that they are above any constraint that might apply to lesser mortals and thatno enforcement activity will ever successfully address them."

The comment in quotes above DESCRIBING BOTH PARTIES in Congress (and the ENTIRE D.C. ESTABLISHMENT, the Bushes, the Clintons, Obama and Dept of "Injustice" ) is from one of the investigators into what happened to the $4.5 trillion TAXES from the Wanta-Mitterand protocols that were supposed to be deposited into our Treasury in Dec 2009. Those funds were instead deposited to Goldman-Sachs by Bush's Treasury Secretary Paulson according to this website.